Back On The Radar - Commemorative CRA Hearing Fixes on Lack of CU Regulation
WASHINGTON -- A Feb. 13 House Financial Services Committee hearing signaled that the question of whether credit unions should be covered by the Community Reinvestment Act has moved back onto the legislative radar.
The hearing--titled The Community Reinvestment Act: Thirty Years of Accomplishments, but Challenges Remain--was meant to commemorate the 30th anniversary of the act, but quickly became a forum for suggestions on how to better the act, a discussion that kept getting drawn back to CUs and their lack of CRA regulation.
During the first panel of witnesses which consisted of regulators, committee Chairman Barney Frank, (D-Mass) had a letter from NAFCU entered into the record and turned to Howard Pitkin, commissioner of the Connecticut Department of Banking, to ask how Connecticut credit unions have fared under that state's CRA requirement.
NAFCU had written Frank and Ranking Member Spencer Bachus (R-Ala.), asserting the position that credit unions do not need to be covered by CRA.
"As you are aware, the Community Reinvestment Act (CRA) was adopted as a punitive measure to punish specific bad actors--namely banks and thrifts--for engaging in discriminatory practices such as redlining and disinvestment," NAFCU wrote in its Feb. 12 letter.
"Credit unions were not included under CRA because there has never been any evidence that credit unions have engaged in these illegal and abhorrent activities. Credit unions are inherently invested in their communities, operating unlike other depository institutions with a not-for-profit cooperative structure and a common bond membership," the association wrote, adding, "As many have wisely noted, if all financial institutions acted like credit unions, there would be no need for CRA."
Frank used the NAFCU letter as a jumping-off point to ask Pitkin about his experience. Connecticut has conducted on-site examinations of state-chartered credit unions since July 2001, though the requirement is limited to community credit unions that--as Pitkin explained later--serve only one or two counties.
Pitkin told the committee that state-chartered credit unions have not complained about the act and implied that the act has helped state-chartered credit unions document what they are doing. "We have always believed that credit unions have a story to tell and sometimes lacked the opportunity to tell it," Pitkin said.
He also told Representative Melvin Watt (D-N.C.) that, in his view, credit unions should be one of the categories of financial institutions that perhaps should be covered by CRA.
The question of CUs and CRA appeared again in the second panel, which included John Taylor, CEO of the National Community Reinvestment Coalition, a longtime critic of credit unions working with lower-income communities and advocate of CRA for credit unions.
Significantly, even though his prepared remarks included the call to add CRA for credit unions, Taylor did not mention them until Frank asked whether he still advocated this, which he did. Representative Joseph Baca (D-Calif.) tried to challenge Taylor regarding his CU stance, but was hampered as he appeared to read his questions from a CU position paper and, at one point, seemed to forget the name of Taylor's organization.
Baca tried to ask Taylor point blank about how much funding from banking sponsors NCRC received, a question Taylor sidestepped, citing the organization's funding was from a mix of grants, property rentals, and dues among other sources. He also said he would dispute the data Baca referred to.
Taylor didn't present anything new in his critique on credit unions, only contending that they lagged CRA-covered banks in their lending, but acknowledged on a couple of occasions that they are "getting better."
Not surprisingly, the final panel, which was made up of bankers, firmly advocated CUs having CRA requirements, but included some perspectives that would have likely been very unusual 15 years ago.
Lawrence Fish, chairman of the Citizens Financial Group, the holding company for Rhode Island-based Citizens Bank, told the committee his experience with CRA had led him to believe that the act was actually good for business, noting that it had led the bank to make investments in areas he termed "emerging markets," where the bank might not have gone before.
"Citizens Financial Group has built a highly successful business around these emerging markets," Fish told the lawmakers. "This growth took place not in spite of our commitment to the CRA, but because of it. We now speak more than 70 languages at our branches. Many of these branches are in markets we might not have entered without the CRA."
Because it is such an opportunity, he continued, means that CUs should have it as well. "Credit unions operate in their communities and are regulated in a manner quite similar to banks," Fish said. "Given their number and total assets, it is logical that CRA benefits and opportunities be extended to them as well."
Frank and a number of other members appeared open to the idea that CRA should be extended to credit unions. And given the lack of CU testimony, critics were able to promote CRA for credit unions without significant challenge.
Pat Keefe, spokesman for CUNA, said the association had been told that the point of the hearing was commemorative and that credit unions had no expertise in CRA so they were not invited to testify. CUNA had then decided it would not be in credit unions' interest to send a letter or witness statement.
CUNA told the Credit Union Times that as the number of credit unions serving communities has grown a large body of evidence is being compiled showing that credit unions significantly outperform others in lending to low- and moderate-income (LMI) and minority borrowers.
The association reiterated that according to 2005 and 2006 Home Mortgage Disclosure Act data, credit unions make a greater proportion of HMDA covered loans to LMI borrowers than do other mortgage lenders and credit unions approve first mortgage loans to LMI and minority borrowers at much higher rates than do other lenders. Similarly, credit unions deny first mortgage loans to LMI and African-American borrowers at much lower rates than do other lenders.
"Attacks on the credit union record typically ignore this body of evidence revealing a favorable credit union record," Keefe added.